Neither. If you pay-off then what are you going to do with the positive cash flow? Buy the same investments that you sold to pay off?We were doing our annual financial review today and I ran the numbers on what our mortgage will cost in interest over the life of the loan and determined it to be around 420k. This made me look at options on how we could pay off the 430k mortgage completely and it appears we could use a combination of cash and after tax contributions from our Roth 401k. Our current loan is a 30 year fixed with an interest rate of 5.375% which we are approximately one year into. As I see it, if we pay it off we are ensuring a 5.375% return on the money. What is the prevailing thought on this approach? Payoff or keep the mortgage?
For context: we are married in our early 40's with two young kids with no plans to ever move from this house. We plan on maintaining a healthy emergency fund after the payoff which will cover 12 months of expenses or any major life issues. The remaining tax advantaged retirement accounts will be 1.2 million after the payoff is complete.
It looks like 420k is the interest cost but that is not total cost to you when all things are considered because 430k in roth money would also grow.
Most of the interest seems non-deductible. I would just pay it faster. If you have more than 400k in after-tax-401k then you don't really need large EF. Probably you have a good taxable account as well. I would just keep the EF to 3 months and take the rest to pay towards the mortgage. Any extra cash then just pay towards the mortgage.
Statistics: Posted by babystep — Sat May 25, 2024 6:39 pm — Replies 12 — Views 735